If one assumes, as does Cisco Systems Inc. (NASDAQ: CSCO), that the availability and quality of country’s broadband penetration reflects that country’s preparedness for the future, then the US lags behind 14 countries in a tie with Canada and Latvia for 15th place. The leader, as it has been for all three years of the Cisco-sponsored study conducted by the Said Business School at Oxford University and the University of Oviedo, is South Korea.
Building out the US broadband network means that broadband suppliers like AT&T (NYSE: T), Verizon Communications Inc. (NYSE: VZ), Sprint Nextel Corp. (NYSE: S), and others will need to continue making large investments in laying fiber optic cable. These companies are also spending heavily to boost mobile broadband quality. According to the study, 10% of mobile broadband users enjoy quality equal to fixed-line users.
According to the study, the current measure of broadband quality comprises a download speed of 3.75 Mbps, an upload speed of 1 Mbps, and latency of 95 ms. These benchmarks allow today’s users to participate in social networking, low-definition video streaming, basic video chat, sharing of small files, and standard-definition IP television.
In order to be prepared for what the study calls “Internet applications of the future” (3-5 years), broadband requirements jump to a download speed of 11.25 Mbps, an upload speed of 5 Mbps, and latency of just 60 ms. These future applications include video networking, high-definition video streaming, high-quality video telephoning, sharing large files, and high-definition IP television. No US city meets these higher requirements according to the study. Fixed-line broadband in the US is available to 75% of households, compared with 100% in South Korea. In fact, South Korea’s broadband quality exceeds future requirements by about 3x in upload and download speeds and 22% in latency.
Another interesting conclusion from the study is that broadband consumption patterns appear to be diverging. A basic consumer of broadband may require download speeds of just 2 Mbps and consume about 20 gigabytes per month of data. What the study calls a “smart and connected home” may require speeds of 20 Mbps and consume some 500 gigabytes of data per month.
The study also looked at how broadband quality affected market share of the service providers. As might be expected, monopoly carriers that provided fiber connections increased market share by 13% in two years. Cable providers with high-quality broadband in competitive markets increased market share by 10%.
The disparity between consumption models, the high cost of laying fiber, and the market share improvements lead to the conclusion that tiered pricing is sure to become the norm, and that the battle over net neutrality is being decided in favor of the carriers. Those households that use only minimal broadband service will not want to subsidize those using large amounts of bandwidth.